The figures clearly indicate that we are presently in or on the verge of stagflation. Food inflation is to blame for the recent increase in inflation, and while there is some seasonality to it given the year-on-year data, it is not the only cause. Cereal inflation is particularly concerning because it is a product of the Narendra Modi government’s stockpiles and artificial scarcity in the market. Low supply, as well as other variables, drive inflation in pulses. However, the next three to four months will be a ‘wait and see’ scenario to see if inflation returns to more normal levels. Because present inflation is mostly driven by food inflation, where monetary policy plays a minor influence, monetary policy will not be sufficient to remedy the problem.
At the same time, demand has decreased dramatically. The Modi government will have to concentrate on increasing consumption, even if it means sacrificing fiscal discipline. The government should not be deterred from pursuing expansionary policies in the next Budget because of the current stagflation. The priority should be to resurrect rural demand. The administration has yet to acknowledge that a severe demand problem exists.
It’s also worth noting that, while the figures suggest stagflation, the issue isn’t entirely empirical. Other elements, such as financial markets, also play a role. It’s a more serious problem than what’s being reported.
What is India’s current inflation rate?
The Reserve Bank of India (RBI) is attempting to calm fears about rising prices, but Indian households may end up bearing the brunt of the burden.
India’s retail inflation increased to 6.01 percent in January, just above the top limit of the Reserve Bank of India’s tolerance zone, due to rising costs of food and manufactured goods, according to data released on Feb. 14. From a revised 5.66 percent in December to 4.06 percent in January 2021, the consumer price index (CPI) reached its highest level in seven months.
In India, what kind of problem is inflation?
Inflation is defined as a widespread increase in prices. To be more precise, inflation is a long-term increase in the general price level rather than a one-time increase.
Deflation, on the other hand, refers to continually declining prices. In India today, inflation, or continually rising prices, is a big issue. The value of money decreases as the price level rises owing to inflation. When prices continue to climb, individuals require more and more money to purchase products and services.
Is India experiencing stagflation?
The protracted Russia-Ukraine conflict is putting the Indian economy at risk of stagflation, which will be exacerbated by trade interruptions and rising oil costs, pushing already high inflation further higher and hurting growth prospects.
Even before the Omicron version of the coronavirus disrupted the economy, according to data released on Monday, the economy slowed in the October-December quarter.
The ongoing Russia-Ukraine conflict is set to put a strain on Asia’s third-largest economy, just as the country begins to recover from the latest coronavirus outbreak.
Finance Minister Nirmala Sitharaman expressed concern about the impact of the Ukraine conflict on the government’s exports.
“What is going to have an impact on our immediate imports, as well as our exports to Ukraine, is something that we are rightfully concerned about. But I’m more concerned about what would happen to our successful exporters, particularly in the agricultural sector “At an event in Chennai on Monday, the finance minister stated while talking with business leaders.
The geopolitical dangers emanating from the Russia-Ukraine crisis, according to IndiaRatings and Research, will raise the import bill for products such as mineral fuels and oils, gems and jewelry, culinary oils, and fertilisers.
“Inflation, an increase in the current account deficit, and rupee devaluation will be the immediate effects of the conflict on the Indian economy. An increase in crude oil prices of $5 per barrel will result in a $6.6 billion increase in the trade or current account deficit “Sunil Kumar Sinha, IndiaRatings and Research’s Principal Economist, agreed.
Is there inflation in India’s economy?
Stagflation is characterized by poor economic performance and rising prices. Rising prices erode people’s purchasing power and have a negative influence on household budgets. Furthermore, a reduction in production reduces demand for production elements such as land and labor, leading in increased unemployment and deprivation of livelihood.
In a technical sense, no. However, when contrasted to the pre-pandemic growth rate and a negative growth rate of 6.6 percent in FY21, the predicted 8.3 percent growth rate in FY22 only translates to a 1.7 percent net growth rate. On the other hand, because the present inflation trend is primarily due to increases in the costs of vital raw materials such as crude oil, commodity prices, and domestic and international supply chain disruptions, the situation is trending towards cost-push inflation. It is necessary to keep an eye on the issue.
It may be only fair to say that the fiscal and monetary authorities must maintain a careful eye on the situation and reassure the people by explaining the current international and domestic circumstances. To rationalize the usage of important items like petroleum fuels, public collaboration may be sought. Meanwhile, the government should develop a long-term strategy for ensuring the availability of alternate energy sources.
What is inflation and what are its numerous types?
- Inflation is defined as the rate at which a currency’s value falls and, as a result, the overall level of prices for goods and services rises.
- Demand-Pull inflation, Cost-Push inflation, and Built-In inflation are three forms of inflation that are occasionally used to classify it.
- The Consumer Price Index (CPI) and the Wholesale Price Index (WPI) are the two most widely used inflation indices (WPI).
- Depending on one’s perspective and rate of change, inflation can be perceived favourably or negatively.
- Those possessing tangible assets, such as real estate or stockpiled goods, may benefit from inflation because it increases the value of their holdings.
In India, how is inflation managed?
The Reserve Bank of India is in charge of controlling inflation through monetary policies, which include raising bank rates, repo rates, cash reserve ratios, dollar purchases, and managing money supply and credit availability.
What is India’s primary source of inflation?
What is the source of India’s high inflation? Food inflation is frequently noted as a contributing factor to India’s higher overall inflation rate. Despite supply interruptions, rising per capita income and diversification of Indian diets have increased demand for high-value food goods such as milk, eggs, beef, and fish.
Who determines India’s inflation rate?
WPI, as the name suggests, measures wholesale prices and was used by the Reserve Bank of India to make monetary policy until 2014. The wholesale pricing index (WPI) is the price of a typical basket of wholesale items. It considers a basket of 697 items and displays the total costs.
Manufactured Products (65% of total weight), Primary Articles (food, etc.) (20.1%), and Fuel and Power (5% of total weight) make up the WPI basket (14.9 percent). The Ministry of Commerce and Industry calculates the WPI.
Why is India’s inflation so high?
Simply put, rising non-food inflation, resulting from global supply chain disruptions and additional constraints imposed by the new Omicron version of the coronavirus, appears to be the most significant impediment to a rapid economic recovery.
India’s Consumer Price Index-based inflation may rise to 6% early next year, according to global brokerage Nomura.
“Inflation is expected to rise to 6% in early 2022, bringing it in line with rising core inflation. Over the next six months, we predict increased prices for food, core commodities, and services to lead to a convergence of headline and core inflation of 6%. In a note published last month, Nomura economists predicted that headline inflation will average 5.5 percent YoY in 2022, up from 5% in 2021.
Are we on the verge of stagflation?
According to Bank of America’s latest Global Fund Manager Survey, professional investors are growing increasingly pessimistic about the future, with the majority now predicting that stocks will enter a bear market this year and that the US economy will suffer from stagflation (high inflation and slow economic growth).